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Business News/ Markets / Stock Markets/  Goldman Sachs downgrades SBI, ICICI Bank, Yes Bank; upgrades Bajaj Finance and reiterates buy on HDFC Bank. Check detail
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Goldman Sachs downgrades SBI, ICICI Bank, Yes Bank; upgrades Bajaj Finance and reiterates buy on HDFC Bank. Check detail

Stock Market Today: Goldman Sachs downgraded SBI, ICICI Bank, Yes Bank, as it sees multiple challenges ahead. Goldman Sachs believes that proverbial Goldilocks period (strong growth & profitability) is over for the financial sector. However, it upgraded Bajaj Finance and reiterated buy on HDFC Bank.

Goldman Sachs downgrades State Bank of India (SBI), ICICI Bank, Yes Bank (Reuters)Premium
Goldman Sachs downgrades State Bank of India (SBI), ICICI Bank, Yes Bank (Reuters)

Goldman Sachs downgrades State Bank of India (SBI), ICICI Bank, Yes Bank, as its sees multiple challenges ahead for the financial sector companies. However it upgrades Bajaj Finance and reiterated buy on HDFC Bank.

Goldman Sach analysts said that the earnings of financial sector are facing multiple challenges ahead and thereby they have cut the earnings estimates across companies in their coverage universe by 5% and 2% on an average over FY25 and FY26 respectively . 

Goldman Sachs analysts believe the proverbial Goldilocks period i.e the period of strong growth & strong visible profitability, is over for the financial sector in the near-term and headwinds are increasing .

 The major headwinds that Goldman Sachs highlighted include-

1.Rising pressure on cost of funds due to structural challenges in the funding environment

Also read- Jio Financial Services share price jumps 14% to a record high; market cap crosses 2 lakh crore

2) growing concerns on rising consumer leverage posing potential asset quality challenges, particularly in unsecured lending ($127 billion loan book in the sector) leading to higher credit costs and hence they prefer commercial retail over consumer retail which is expected to grow faster and offers a much better returns profile 

3. pressure on operating costs due to elevated wage inflation as well as the need to expand the distribution network for future deposit growth.

As per Goldman Sach ROAs for the financial companies are expected to moderate from hereon. ROA ratio is company's net, after-tax income divided by its total assets. 

The valuations of financial institutions are at a comfortable level though, they said

The Indian banks had witnessed sharp ROA expansion during FY20-3QFY24 period. Goldman Sachs analysts believe that the ROAs will now start moderating given continued pressure on margins which they expect to extend to FY25.

Also Read- Small-cap dividend stock below 100 to consider bonus shares, stock split soon

Also a slower loan growth as Loan-Deposit ratios are stretched, will impact ROAs. Further the sector will have to repair its balance-sheet mix and this, coupled with the need of building capacity, should keep cost-to-income levels elevated. 

Goldman Sachs believe all players face the dilemma of maintaining market share or compromising margins amidst the backdrop of stronger balance sheets across the system.

Goldman Sachs thereby have downgraded State Bank of India, ICICI Banks ratings to Neutral from Buy and Yes Bank ratings to Sell from Neutral . Goldman Sachs sees 4% downside for  SBI  and 3% upside for ICICI Bank. However for Yes Bank Goldman Sachs analysts see a 37% downside. 

However Goldman Sachs has upgraded Bajaj Finance to Neutral from Sell as they sees 2% upside for the stock while they reiterate Buy ratings  on HDFC Bank expecting a 33% upside.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions

 

market share or compromising margins amidst the backdrop of stronger balance sheets across the system

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ABOUT THE AUTHOR
Ujjval Jauhari
Ujjval Jauhari is a deputy editor at Mint, with over a decade of experience in newspapers and digital news platforms. He is skilled in storytelling, reporting, analysing and writing about stocks, investment ideas, markets, corporates and more. He is based in New Delhi.
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Published: 23 Feb 2024, 11:58 AM IST
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